The asset holdings of the important central banks are shrinking (Fed, BOJ, ECB), as the three central banks have shifted from quantitative easing towards quantitative tightening.

The three central banks were involved in a substantial program of bond buying in the wake of the 2008 financial meltdown to stimulate their own economies as well as to play their part in supporting the global economic recovery from the Great Recession.  

The U.S. Fed began its quantitative easing (QE) program of buying government bonds in 2008 in order to provide liquidity to the US economy which was dramatically in free fall. The Fed ended its QE bond-buying program in 2014 and is currently shrinking its balance sheet.

The Bank of Japan and the ECB are still engaged in the QE process, though they are tapering back on their purchases. As Bloomberg notes, the combined balance sheets of the three central banks peaked last March, and at this time all three central banks are running down their bond holdings.

According to the Financial Times, the assets of the leading central banks are financing about 31% of government debt.

The Financial Times reports that Japan’s central bank support to the government bond market was the largest, accounting for about at 35% of the bonds outstanding. The ECB’s support of government bonds was about 25%, while the Fed’s assets support about 10 % of US government debt.

In the case of the Fed, it is currently allowing as much as $50 billion of its bond holdings mature every month without replacing them. While President Donald Trump has been critical of the Fed’s interest rate hikes, which he associates with the weakening of stock market prices, he hasn’t specifically made public his views on quantitative tightening.

Since the ECB and BOJ are still buying securities, what’s happened so far is essentially a scaling back of QE, rather than an actual unwinding. But, as the following chart illustrates, the shift in combined central bank bond financing this year has been enormous.